Feds seek to foreclose on Sandwich Isles

The federal government is trying to foreclose on the assets of Sandwich Isles Communications Inc. to recover $128 million in principal and interest the company owes on delinquent U.S. Department of Agriculture loans, according to a lawsuit filed by the U.S. Department of Justice.

The politically connected Sandwich Isles company had an exclusive license to provide telecommunications services on Hawaiian Home Lands, and borrowed more than $166.7 million from the USDA to help finance its fiber optic telecommunications network across the Hawaii Islands.

Hawaii political leaders, including the late U.S. Sen. Daniel K. Inouye, supported Sandwich Isles’ efforts to obtain still more USDA loans, but according to the lawsuit filed last week company founder Albert Hee told federal officials in 2013 that SIC could no longer make the payments of more than $1 million per month for its loans.

Hee was convicted of federal tax fraud in 2015 and sentenced to 46 months in federal prison for concealing from the IRS that his company deducted $2.75 million as business expenses to cover Hee’s personal expenses. Hee is serving his sentence at a federal facility in Terre Haute, Ind.

Among the supposed business expenses cited by prosecutors in the tax fraud case were $718,559 the company paid for college tuition and living expenses for Hee’s three children, $92,000 in payments for massages for Hee and $121,878 in credit card charges made by Hee for personal expenses, according to federal court filings.

Archived congressional records recently made public by the University of Hawaii at Manoa Library Congressional Papers Collection show Inouye intervened on behalf of Sandwich Isles repeatedly over the years to urge USDA to loan more money to SIC, and also pressed the Federal Communications Commission to provide telecommunications subsidies to support the company.

Inouye, a revered political figure in Hawaii who served in the U.S. Senate for 50 years, also urged former U.S. Sen. Tom Harkin in 2007 to add new language to a federal Farm Bill in an effort to clear the way for USDA to loan more money to Sandwich Isles, according to the archived records. Harkin, (D-Iowa) was then the chairman of the Senate Committee on Agriculture, Nutrition and Forestry.

The archived papers of former U.S. Rep. Neil Abercrombie show Abercrombie also contacted the USDA’s Rural Utilities Service in 2005 an effort to secure additional federal loans for Sandwich Isles. Those efforts by Inouye and Abercrombie in securing additional USDA loans for SIC were not successful.

However, Sandwich Isles did obtain federal loans in 1997, 1999 and 2001, and used the money to install fiber optic cables and build other infrastructure across the state for a new telecommunications system to provide services to the far-flung, rural Hawaiian Home Lands properties.

Sandwich Isles committed all of its property except for its vehicles as collateral for the USDA loans, but in April 2013, Hee notified USDA that his company could no longer make the required payments of more than $1 million per month, according to the lawsuit.

By May 1, 2013, “SIC was unable to pay its debts as they became due, and its liabilities exceeded its assets at fair value,” according to the lawsuit by the Justice Department.

After SIC stopped making full payments to USDA, the company authorized payments to Hee and company officers Randall Ho, Janeen-Ann Olds and members of Hee’s family that should have been made to USDA, the suit alleges.

The suit also claims that directors or officers of Sandwich Isles improperly authorized company payments to other companies owned or affiliated with Hee, and alleges that money should have been paid to USDA.

The suit seeks a foreclosure judgment against SIC, and an order requiring the company’s assets be sold. It also seeks judgments against Hee, Olds and Ho for allegedly paying other company debts before paying the money that is owed to USDA.

Sandwich Isles Communications said in a email Wednesday, “When the Federal Communications Commission withheld funds that were due to Sandwich Isles Communications, this constrained the company but we acted responsibly by continuing to pay for services to our vendors to maintain telecommunication services to our subscribers on Hawaiian Home Lands without interruption.

“We are still reviewing the complaint filed by the U.S. Justice Department on behalf of the U.S. Department of Agriculture to explore potential next steps. Despite these constraints, Sandwich Isles Communications continues to operate and serve our customers,” the statement said.

SIC founder Albert Hee is the brother of former state Sen. Clayton Hee, who is running for governor this year.

Sandwich Isles provides telecommunications services to about 3,600 customers on Hawaiian Home Lands, but has been pummeled by legal and other challenges that threaten its survival.

SIC received more than $249 million from the federal Universal Service Fund to support telecommunications services on Hawaiian Home Lands over the years, but in 2015 the FCC cut off most federal subsidies to the company. The USF is financed through fees collected from telecommunications customers across the country.

In late 2016 the FCC ordered Sandwich Isles to repay more than $27 million of the federal USF money it received, and also proposed another $49 million in fines for Sandwich Isles, its parent company Waimana Enterprises Inc. and Albert Hee for alleged violations of FCC rules.

Adding to the company’s troubles, the FCC last year ruled that the exclusive Hawaiian Homes license that Department of Hawaiian Home Lands granted to Sandwich Isles in 1995 is illegal under the Telecommunications Act of 1996.

Last month state officials reported SIC had laid off much of its workforce. William Aila, deputy director of the state Department of Hawaiian Home Lands, said the department was working on “possible mitigation” that could include a sale of the company or transfer of assets.

Aila declined to disclose any further details, and was unavailable for comment on Wednesday.

Albert Hee was a generous source of funding for federal political campaigns over the years, donating more than $45,000 to federal candidates and their committees since 2000, and contributing more than $60,000 to the Obama Victory Fund in 2011 and 2012.

He also donated more than $50,000 to various Democratic Party organizations since 2008, with most of that money going to the DNC Services Corp., which supports the Democratic National Committee.